After thinking about things for a while Sam and Judy have decided to rent and try to come up with an even bigger down payment. Their parents have made the $45,000 available to them right away and they want to invest in both stocks and bonds. Actually, they will probably buy mutual funds but the fund will return the same gains that individual securities will. They have done some research and have discovered that over time bond funds return about 5% per year and stock funds return about 9% per year.
Your assignment should include the following:
1) Your guess at what kind of risk tolerance Sam and Judy have. You can make your guess based on the material and recommendations in our earlier presentations. Make sure your presentation includes your rational.
2) Your suggestions for an asset allocation for their investments, meaning what percentage of their money they should invest in bonds and what percentage should they invest in stocks.
3) Based on their asset allocation how much do you think that they will have for a down payment in five years? Use the Future Value method to determine how much they will have. Make sure that you show all of your work in calculating what they will have.